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> What percentage of traders do you think will approach the market with such altruism? Approximately 0%. I don't know of any entities that trade as a nonprofit
by 1e-9 7y ago
> What percentage of traders do you think will approach the market with such altruism?
Approximately 0%. I don't know of any entities that trade as a nonprofit. The point is that if you find something the market needs, you will have inherently discovered an opportunity that can make money because there is demand which exceeds supply for the service. As an additional benefit, such strategies are unlikely to run afoul of regulatory oversight or be eliminated through future rule changes.
> I think the markets are way too complex to rationalize "improving a market".
This is not rationalizing, it is about how to effectively identify profitable opportunities. Let's turn the argument around. Do you expect a trading strategy that harms a market to be reliably profitable without risking fines, banning, or imprisonment? If you don't, then it probably makes sense to exclude such approaches from your strategy search space. Additionally, I would argue that strategies which are of neutral benefit to the markets are likely to generate small returns relative to their risk because entities on the other side of your trades are not receiving value and thus the market is more likely to turn against you. If we eliminate "harmful" and "neutral", we're left with "beneficial".
I completely agree with everything else you say.
- astrophysician 7y ago> Do you expect a trading strategy that harms a market to be reliably profitable without risking fines, banning, or imprisonment? Non-trader here, what do you mean by a particular trading strategy "harm[ing] a market," how would you actually measure harm to a market by a given trading strategy, and would whatever metric you decide on for that not just be a dressed-up subjective argument?
- 1e-9 7y agoBy "harming a market", I mean "causing a market to be less efficient". It is typically easier to identify harmful behavior than it is to quantify the amount of harm caused. Sometimes you can easily estimate a rough lower bound on the harm's cost. Easier cases include 1) Spoofing, where you could estimate the harm as being greater than the captured profit, and 2) Self-trading for the purpose of receiving liquidity provider incentives, where you could estimate the harm as being greater than the incentives received. Harder cases include situations where poor strategies caused market instability by underestimating risk or trading in a way that is too similar to others. Extreme examples of these include the Long-Term Capital Management (LTCM) blowout in 1998, the 2010 Flash Crash, or any number of firms that contributed to the financial crisis of 2007-2008. You should be able to find plenty of academic papers attempting to quantify the harm of those.